Press Release

Press Release NEW HPC ANALYSIS HIGHLIGHTS NEED FOR TRANSPARENCY IN DRUG PRICING PRACTICES OF PHARMACY BENEFIT MANAGERS

Prices Charged by Pharmacy Benefit Managers for Generic Drugs Were Often Markedly Higher Than the Actual Cost of the Drug in Both the Massachusetts Medicaid Managed Care and Commercial Plans, Contributing to Higher Health Care Spending
For immediate release:
6/05/2019
  • Massachusetts Health Policy Commission

Media Contact for NEW HPC ANALYSIS HIGHLIGHTS NEED FOR TRANSPARENCY IN DRUG PRICING PRACTICES OF PHARMACY BENEFIT MANAGERS

Matthew Kitsos, Press Secretary

BOSTONWednesday, June 5, 2019 – Today, the Massachusetts Health Policy Commission (HPC) released a new DataPoints issue on a pricing practice used by pharmacy benefit managers (PBMs) known as “spread pricing,” and its impact on prescription drug spending in both Medicaid managed care and commercial health plans in Massachusetts. The findings were presented at the June 5, 2019 meeting of the HPC’s Market Oversight and Transparency (MOAT) committee.

DataPoints Issue #12: Cracking Open the Black Box of Pharmacy Benefit Managers

The HPC’s new DataPoints examines PBM pricing practices for generic drugs in both the MassHealth Managed Care Organization (MCO) program and the commercial market. PBMs manage prescription drug benefits for health plans, including the negotiation of prices and rebates with manufacturers and payments to pharmacies. “Spread pricing” refers to the practice in which the PBM charges a payer more than it reimburses the pharmacy for a certain drug and retains the difference. This practice is used as a means of payment for PBM services but is less transparent and may allow for higher PBM profits than alternative methods. Spread pricing contrasts with the “pass-through model,” where PBMs charge payers the same amount that they reimburse pharmacies, plus a set administrative fee. By industry estimates, the share of PBM revenue from spread pricing has grown from 22% in 2014 to 54% in 2016.

In the 2018 Cost Trends Report, the HPC issued a recommendation that the Com­monwealth increase state oversight of pharmacy benefit manager pricing practices and take steps to limit the prac­tice of spread pricing. The research released today illustrates the opaque and convoluted flow of health care dollars throughout the drug distribution chain and highlights the inflationary impact that the practice of spread pricing may have on drug prices. The HPC analysis concludes that greater transparency in the PBM drug pricing model is needed so payers can make more informed choices about allocation of state spending or premium dollars, including appropriate compensation for both pharmacies and PBMs. 

“These findings reinforce the urgent need for policy action to enhance the transparency and accountability of the prescription drug market,” said David Seltz, HPC Executive Director. “Increased oversight on pharmacy benefit managers is necessary to ensure that their pricing strategies are not used to inflate profits at the expense of Massachusetts residents and employers. Private and public health plans – along with employers and patients – need more information to make better informed spending decisions that will hopefully lead to an overall reduction in spending on pharmaceuticals.”

As part of the fiscal year 2020 state budget strategy to control rising MassHealth drug prices, the Baker-Polito Administration proposed a new requirement that PBMs be transparent about their pricing and a limitation on PBM margins under contracts with MCOs and accountable care organizations (ACOs), which the Administration projects will save $10 million.

The federal government requires Medicaid Fee-For-Service (FFS) programs to use the transparent pass-through drug pricing model, mandating that all state FFS programs reimburse pharmacies based on the acquisition cost of the drug plus a set dispensing fee. However, this requirement does not apply to PBM contracts with Medicaid MCOs or in the commercial market.

To examine the potential impact of these different pricing practices, the HPC compared generic drug prices in the MassHealth MCO program and in the commercial market to the pharmacy acquisition cost for the drug, based on the National Average Drug Acquisition Cost (NADAC). The difference between the payer price and NADAC is largely comprised of the dispensing fee to pharmacies and the potential profit retained by PBMs. Since there are no publicly available data on PBM reimbursement rates to pharmacies, these methods represent only an approximate indication of how significant PBM profit margins may be on generic drugs.

The HPC also compared the MCO/PBM prices to FFS, using FFS prices as a benchmark for the pass-through pricing model that includes the set dispensing fee of $10.02 per prescription.

Key findings include:

  • In 2018, MCO/PBM drug prices were higher than the acquisition prices for 95% of the unique drugs analyzed by the HPC and exceeded FFS prices for 42% of unique drugs.
  • For the drugs where the MCO/PBM price was higher than the FFS price, the difference was often substantial, leading to higher average drug prices overall. MCO prices exceeded FFS prices by an average of $15.97 per unique drug.
  • The MCO/PBM price exceeded the FFS price per prescription by at least $10 for nearly 25% of unique drugs and was at least $50 higher for approximately 10% of unique drugs.
  • Buprenorphine-Naloxone (generic Suboxone) had the highest aggregate spending difference in late 2018, totaling $252,536 in Q4. MCOs paid an average $159 per prescription of buprenorphine, 111% higher than the average FFS price of $75.
  • For several widely prescribed generic drugs, a drop in acquisition costs has not translated to lower prices for the MassHealth MCO program. For example, from 2016 Q1 to 2018 Q4, the average acquisition cost for Buprenorphine fell by 60% while the MCO/PBM price increased by 13%.
  • PBM prices for generic drugs were markedly higher than the drugs’ acquisition costs in the commercial market. The price for generic Gleevec, used in treatment of leukemia, was an average of $1,811 more per prescription than the pharmacy acquisition cost. This per prescription difference translated to more than $278,000 in aggregate spending above acquisition cost.

“Increasing access to Buprenorphine-naloxone, a highly effective medication treatment option for opioid use disorder, is critical to combatting the opioid epidemic and reducing fatal overdoses,” said HPC Commissioner Martin Cohen, President and CEO of MetroWest Health Foundation. “The fact that the pharmacy benefit managers have increased the prices charged for this drug in the MassHealth managed care program, at the same time that the acquisition cost of the drug has decreased significantly, raises particular concerns and questions regarding the appropriateness of these pricing practices.”​

Higher generic drug prices paid by MCOs come out of the fixed per-member (capitation) payment rate from MassHealth to cover a beneficiary’s medical and pharmacy benefits. Therefore, while higher drug prices do not necessarily translate to direct state spending in the short term, these prices can lead to MCOs allocating fewer resources for other medical services and can raise spending in the long term through higher capitated rates.

Massachusetts along with other states and federal regulators are pursuing action to increase oversight of PBMs to ensure that public dollars are spent efficiently at all points in the drug distribution chain. A number of states have introduced legislation requiring PBMs to be licensed by the state and to disclose information on pricing, rebates and reimbursement to pharmacies, among other actions.

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The Massachusetts Health Policy Commission (HPC), established in 2012, is an independent state agency charged with monitoring health care spending growth in Massachusetts and providing data-driven policy recommendations regarding health care delivery and payment system reform. The HPC’s mission is to advance a more transparent, accountable, and innovative health care system through independent policy leadership and innovative investment programs.

Visit us at Mass.gov/HPC. Tweet us @Mass_HPC.

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Media Contact for NEW HPC ANALYSIS HIGHLIGHTS NEED FOR TRANSPARENCY IN DRUG PRICING PRACTICES OF PHARMACY BENEFIT MANAGERS

Massachusetts Health Policy Commission 

The Massachusetts Health Policy Commission (HPC), established in 2012, is an independent state agency charged with monitoring health care spending growth in Massachusetts and providing data-driven policy recommendations regarding health care delivery and payment system reform. The HPC’s mission is to advance a more transparent, accountable, and innovative health care system through independent policy leadership and innovative investment programs. The HPC’s goal is better health and better care – at a lower cost – across the Commonwealth.
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